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BRUSSELS INSIDER #1 by Clare Taylor

Europe’s nuclear future hangs by a thin thread – but Brussels is silent

September 18, 2017

Areva's Olkiluoto 3 in Finland

Europe is still a nuclear superpower, boasting almost half of the world’s reactors. But Europe’s nuclear future hangs by a thin thread: it is dependent on one company, state-owned EDF, which has a debt load of €37.4 billion. Its new projects are plagued by cost overruns, delays, industrial disputes, bail-outs, restructuring and “technical incompetence”, says Mycle Schneider, one of the authors of the just published World Nuclear Industry Status Report 2017. With competition from renewables breathing down its neck, European nuclear industry needs “to reinvent itself, or it will go the way of Westinghouse”, warns Schneider. Meanwhile, Brexatom threatens to undermine the key French-British nuclear axis and Brussels, squeezed between opponents and supporters of nuclear, is paralysed.

“The debate is over. Nuclear power has been eclipsed by the sun and the wind,” states the World Nuclear Industry Status Report 2017 (WNISR) launched in Paris last week. WNISR is an annual independent assessment of the global nuclear industry written by a team of critical experts led by Mycle Schneider.

This year’s edition is particularly gloomy about the future of nuclear power, mainly as a result of the increasing competition it faces from low-cost renewables. “These renewable, free-fuel sources are no longer a dream or a projection-they are a reality that are replacing nuclear as the preferred choice for new power plants worldwide,” notes the report. It highlights that since 1997, worldwide, renewable energy has produced four times as many new kilowatt-hours of electricity than nuclear power. “The world no longer needs to build nuclear power plants to avoid climate change and certainly not to save money.”

Simplistic debate

In Europe, the renewables versus nuclear cost argument was emphasized in the widespread reporting of last week’s power-purchase auction in the UK, where all the winning bids, which will total 3 gigawatts of capacity and include offshore wind, biomass facilities and waste to energy, were cheaper than the £92.50 per megawatt-hour price fixed for the troubled nuclear plant at Hinkley Point. The most expensive was 19% cheaper, and offshore wind came in over a third less.

In a press release, Tom Greatrex, Chief Executive of the UK’s Nuclear Industry Association, commented: “Reports that the cost of future offshore wind projects may fall (if they are constructed) is good news, but […] one technology alone can’t solve the UK’s power challenge.” Furthermore, “the simplistic technology versus technology debate fails to appreciate that different power sources provide different elements of the balanced energy mix we need for the future”. In other words, according to Greatex, we still need nuclear to provide baseload power.

But Schneider rejects that argument. “The whole idea of baseload power is an outdated concept,” echoing predictions from Agora Energiwende that there will be no more baseload power in Germany by 2030 and possibly not anywhere in Europe.

New economic reality

Europe’s future in nuclear matters: close to half of the world’s nuclear power countries are located in the European Union, and between them account for 32% of the world’s gross nuclear production in 2016. Nuclear power generated 26% of Europe’s electricity in 2016. Between 2000 and 2016, wind and solar power increased by over 142.6 GW and 101.2 GW in Europe, with gas power plants coming in at 93.5 GW. Over the same period, nuclear capacities decreased by 15.5 GW, coal by 37.3 GW and fuel oil plants by 37.6 GW.

With this increased competition, lower wholesale prices and shorter operating times, European nuclear operators are feeling the pinch, to put it mildly. In 2016, Eon, ENGIE, and RWE have reported net income losses of €8.45 billion, €0.4 billion, and €5.7 billion respectively. The WNISR 2017 notes the falling EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) margins and sales of six large European nuclear utilities: E.ON, RWE, ENEL, Engie, EDF, and Fortum.

Half of EU nuclear generation is in France, where in 2016, 56 operating reactors in France produced 384 TWh or 72.3% of the country’s electricity, the lowest share since 1988. But the French nuclear powerhouse, long regarded worldwide as the exemplar for nuclear power, is shaking.

“Failed industrial strategy”

The WNISR highlights France as the only European country to drive new-build projects, at home (Flamanville-3) and abroad (Olkiluoto-3 in Finland, Taishan in China, Hinkley Point C in the U.K.). All of these new-build projects are European Pressurized Water Reactors (EPRs), described as “industrial and economic nightmares” in the report.

Olkiluoto-3 was supposed to start up in 2009, Flamanville-3 in 2012, Taishan-1 in 2013 and Hinkley Point C in 2017. The latest schedule has Olkiluoto-3 and Taishan-1 on for 2018, Flamanville-3 for 2019 and Hinkley Point C for 2025 at the earliest.

“This is a failed industrial strategy,” says Schneider. “Flamanville-3 was only built to maintain competence – more supply was not needed. Instead it turned into a demonstration of lack of competence.”

The almost entirely state-owned builder and fuel company Areva, the self-proclaimed “global leader in nu­clear energy”, is technically bankrupt after cumulating a loss of €10.5 billion over six years. A controversial bail-out by EDF to the tune of €4.5 billion courtesy of the French state is expected before the end of 2017.

Last week Finnish nuclear power company Teollisuuden Voima (TVO) said it had lodged an appeal with the European Commission against the bail-out – because it’s not enough. As reported by the Financial Times, a spokesperson for TVO said: “We think the current aid is not sufficient to ensure Areva can cope with all of its obligations and liabilities.”

Meanwhile, Areva, and its former joint venture partner, Siemens, are suing TVO for €3.5 billion in an arbitration case in the International Chamber of Commerce, while TVO is countersuing for €2.6 billion due to cost overruns at Olkiluoto-3.

EDF, the largest nuclear operator in the world, with 58 reactors at home and fifteen in the U.K., which is expected to save Areva, carries a debt load of €37.4 billion.

Brexatom: at the cliff edge

Next to France, the UK is another major European country where the European nuclear crisis is causing huge concerns. EDF’s fifteen nuclear reactors in the UK generate about 21% of its electricity. Half of this capacity is to be retired by 2025, and the rest by 2030, and new build is anticipated.

But future prospects in the UK are uncertain, largely due to ‘Brexatom’: the withdrawal of the UK from Euratom (European Atomic Energy Community), the agency that oversees nuclear safety in Europe. It is an unanticipated consequence of Brexit, and strikes at the foundations of European nuclear cooperation: nuclear new build is governed by the Euratom Treaty which was signed in Rome on March 25, 1957, at the same time as the Treaty establishing the European Economic Community, that later became the European Union.

Without an alternative that would come into force simultaneously with Brexatom, plans to build new nuclear power may encounter considerable delays. And the risk applies to the whole range of nuclear activities in the UK: operation, life extension or decommissioning of existing reactors, uranium and nuclear fuel manufacture, radioactive waste management and storage, nuclear research and the development of advanced nuclear fission or fusion technologies.

A paper on Brexatom published in May by the UK’s trade association for the civil nuclear industry, the Nuclear Industry Association (NIA), warned against a “cliff-edge” when the UK leaves Euratom, and of a “major disruption to the whole nuclear fuel cycle, both in the UK and overseas”.

Undoubtedly, “the UK’s departure from the EU and Euratom Treaty will also have a political impact on the nu­clear sector within the EU27, as the UK has been one of its most active supporters in the EU”, according to the WNISR.

A new industrial strategy

At European level, the policy signals are weak. Nuclear is part of the European Commission’s vision of the future generation mix, but doesn’t feature much in the Energy Union. European nuclear industry is in a fragile state. “Nuclear is not running out of business,” says Schneider, but a new industrial strategy is called for, he notes.

An entire generation of nuclear power plants built in the 1960s and 1970s is reaching the end of its working life. The UK’s Nuclear Decommissioning Authority suggests the total UK bill could amount to as much as £117 billion. Over the next decade, EDF estimates decommissioning and replacement costs at about €54 billion for 58 plants, of which only €23 billion has been set aside.

Germany has set aside €38 billon to decommission 17 reactors and has just agreed a scheme that shares the cost between public sector and utility companies, but decommissioning innovation, know-how and technology remains in its infancy. And East European countries face the task of decommissioning their Soviet-era Russian-built nuclear reactors, a cost that will inevitably fall on richer EU members.

On the global level, at least half of the world’s currently operating 403 nuclear reactors will need decommissioning and potentially replacement within the next two decades – a market that will run to tens of billions.

Too big to fail

There’s an awful lot of work to be done. Who will do it?

These are live issues: “if the European nuclear sector is to survive it has to adapt to the new economic realities” writes Shahin Vallee, an economist specialising in European affairs and a former economic advisor to Emmanuel Macron, in the FT’s energy blog.

“This year’s bankruptcy of Westinghouse shows that no one is too big to fail,” warns Schneider. “Pursuing nuclear new build is a disaster in terms of company strategy. EDF still have a huge competitive advantage because of its unparalleled client base – but it needs to reinvent itself, or it will go the same way.”

And if EDF does not survive, “Western Europe might not only lose its nuclear reactors, but also it would no longer have a company that could provide full-cycle services to customers,” according to recent analysis from Oilprice.com.

In the absence of a new industrial strategy for the European nuclear sector, the next generation of plants will be developed by non-European companies, and the global nuclear industry will become ever more dominated by Russia, Korea and China.